Argentina's Loss Could be Brazil's Gain

What Argentina's expropriation of YPF means to Brazil's biofuels market

Former Argentine President Carlos Saul Menem preferred sesame oil, or maybe olive oil, on his salad. He is Argentine, after all, and Argentines just don't consume soybean oil. They export it. Or make it into biodiesel, and export it. So they're always on the hunt for places to move it.

In fact, though the country is the third-largest soybean producer, it is tops in the world soybean oil trade, shipping as much as they can elsewhere. And if you prefer your soybean oil in the form of biodiesel, Argentina is ready to meet your needs there, too. And Argentina is the world's champion biodiesel exporter, too, shipping nearly $2 billion of the product. Most of that went to the European Union, through Spain.

So what's this got to do with Menem? Well, people who are persnickety about little things like corruption may disagree with me, but I always found a lot to like about the guy. He pulled his country out of years of hyperinflation, and sold off the state-owned post office and utilities, and petroleum company Yacimientos Petrolíferas Fiscales - better known as simply YPF - to the Spanish company Repsol. In doing so, he improved the efficiency of service, and unburdened the Argentine state from running companies that could be private. Argentina beat hyperinflation, and the economy improved nicely for quite some time.

Since then, Argentina has swung back to old ways, and current President Cristina Fernández de Kirchner nationalized 51% of YPF, making it a government-owned elephant again. And the Spaniards, needless to say, are miffed. The biggest customer of the world's biggest biodiesel exporter swears it will take steps to redress its grievance, and it started last week, when it sought the European Union's OK to put the brakes on further biodiesel imports from Argentina.

Though the EU move apparently gives preference to European biodiesel producers, the Brazilians have reason to be hopeful. "I believe the Europeans are going to buy more biodiesel from Brazil," said Madrid's ambassador to Brasília, according to a Brazilian news report. "I think this is an opportunity for Brazil to sell more agricultural products, like soybeans, aside from biofuels and iron ore."

And that would suit Brazilians just fine. After all, the biofuels industry here has long been pushing the administration to move forward the date to double the current mandatory national biodiesel blend of five percent. The head of one Brazilian biodiesel organization says the country right now has 53% excess production capacity.

So there is some chance that Argentina's loss could be - at least to a limited extent - Brazil's gain. But, to be sure, the Argentines will be looking for a place to park all that soy-based biodiesel they make, now that they've infuriated their number-one customer. Either that, or they'll just have to learn to like a dab of soybean oil on that salad.

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